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Does Poverty Change Labor Supply? Evidence from Multiple Income Effects and 115,579 Bags

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  • Abhijit Banerjee
  • Dean Karlan
  • Hannah Trachtman
  • Christopher R. Udry

Abstract

The income elasticity of labor supply is a central parameter of many economic models. We test the response of labor supply and effort to exogenous changes in income using data from a randomized evaluation of a multi-faceted grant program in northern Ghana combined with a bag-making operation that we implemented. We find strong evidence of a positive “income effect” on labor supply. We argue that simple models with either labor or capital market frictions cannot explain the results, whereas a model that allows for positive physiological or psychological productivity effects from higher income fits with our findings.

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  • Abhijit Banerjee & Dean Karlan & Hannah Trachtman & Christopher R. Udry, 2020. "Does Poverty Change Labor Supply? Evidence from Multiple Income Effects and 115,579 Bags," NBER Working Papers 27314, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27314
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    Cited by:

    1. Banerjee, Abhijit & Karlan, Dean & Osei, Robert & Trachtman, Hannah & Udry, Christopher, 2022. "Unpacking a multi-faceted program to build sustainable income for the very poor," Journal of Development Economics, Elsevier, vol. 155(C).
    2. Dmitriy Sergeyev & Chen Lian & Yuriy Gorodnichenko, 2023. "The Economics of Financial Stress," NBER Working Papers 31285, National Bureau of Economic Research, Inc.
    3. Supreet Kaur & Sendhil Mullainathan & Suanna Oh & Frank Schilbach, 2021. "Do Financial Concerns Make Workers Less Productive?," NBER Working Papers 28338, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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